Tempur Sealy Reports Second Quarter 2013 Results

LEXINGTON, Ky., July 25, 2013 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX), the world's largest bedding provider, today announced financial results for the second quarter ended June 30, 2013. The Company also lowered its financial guidance for 2013.

SECOND QUARTER FINANCIAL SUMMARY

• Earnings per diluted share ("EPS") under U.S. generally accepted accounting principles ("GAAP") in the second quarter of 2013 were $(0.03), and reflect transaction and integration costs and a purchase price allocation ("PPA") inventory adjustment related to the acquisition of Sealy Corporation ("Sealy") as well as tax provision adjustments related to the repatriation of foreign earnings utilized in connection with the Sealy acquisition and interest fees related to the Company's refinancing of its Term B loans under its senior secured credit facilities. Adjusted EPS were $0.36 in the second quarter of 2013 as compared to GAAP EPS of $0.45 in the second quarter of 2012. The Company completed its acquisition of Sealy in March 2013, and results for 2012 do not include the Sealy results of operations.
• GAAP net loss in the second quarter of 2013 was $1.6 million. The Company reported adjusted net income of $22.3 million for the second quarter of 2013 as compared to GAAP net income of $29.1 million in the second quarter of 2012. For additional information regarding adjusted EPS and adjusted net income (which are non-GAAP measures), please refer to the reconciliations and other information included in the attached schedules.
• Total net sales increased 100.5% to $660.6 million in the second quarter of 2013 from $329.5 million in the second quarter of 2012.  The net sales increase was due to the inclusion of $344.6 million of Sealy net sales for the second quarter of 2013.
• Gross profit margin was 38.6% as compared to 50.7% in the second quarter of 2012. The gross profit margin decreased primarily as a result of the inclusion of Sealy, which has lower margins than the Tempur North America and Tempur International segments, changes in product mix and higher new product launch costs, offset partially by improved efficiencies in manufacturing and distribution and lower sourcing costs.
• Operating income was $44.0 million, or 6.7% of net sales as compared to $47.5 million in the second quarter of 2012. Operating income included $11.9 million of transaction and integration costs related to the Sealy acquisition. Excluding these costs, the higher operating income reflects the inclusion of Sealy.
• Adjusted EBITDA (which is a non-GAAP measure) for the second quarter of 2013 was $84.2 million as compared to $60.0 million in the second quarter of 2012.
• The Company ended the quarter with consolidated funded debt less qualified cash of $1.9 billion. The ratio of consolidated funded debt less qualified cash to adjusted EBITDA was 4.6 times, calculated on a combined basis for Tempur-Pedic and Sealy in accordance with the Company's new senior secured credit facility. For additional information regarding adjusted EBITDA and consolidated funded debt less qualified cash (which are non-GAAP measures) please refer to the reconciliations and other information included in the attached schedules.

Tempur Sealy International, Inc. CEO Mark Sarvary commented, "The steps we have taken to return Tempur North America to growth are appropriate, but are taking longer than expected.  As a result we are lowering our financial outlook for the full year.  We are pleased with the performance of the rest of our portfolio. Both Sealy and Tempur International net sales were in line with our projections for the second quarter. The integration with Sealy continues to progress well, cost synergies are being realized ahead of plan, and we are more confident than ever that the combination provides significant competitive advantage."

Business Segment Highlights
The Company's business segments include Tempur North America, Tempur International, and Sealy. The Company's "Bedding" product sales include mattresses, foundations, and adjustable foundations and "Other products" include pillows and various other comfort products and components.

Tempur North America net sales decreased 4.9% to $215.5 million in the second quarter of 2013 from $226.6 million in the second quarter of 2012.  Bedding net sales decreased 5.2% to $199.5 million from $210.5 million in the second quarter of 2012.  Net sales of Other products decreased 0.6% to $16.0 million from $16.1 million in the second quarter of 2012.

Tempur International net sales decreased 2.3% to $100.5 million in the second quarter of 2013 from $102.9 million in the second quarter of 2012.  Bedding net sales decreased 6.1% to $73.9 million in the second quarter of 2013 from $78.7 million in the second quarter of 2012.  Net sales of Other products increased 9.9% to $26.6 million from $24.2 million in the second quarter of 2012.

Sealy net sales for the second quarter of 2013 were $344.6 million.  Bedding net sales were $325.1 million and net sales of Other products were $19.5 million. 

Charges and Other Costs
The Company incurred various charges as a result of the Sealy acquisition. Transaction costs recorded in the second quarter of 2013 were $5.4 million and integration costs were $6.5 million. In addition, the Company incurred $8.7 million in prepayment premium fees related to the Company's refinancing of its Term B loans under its senior secured credit facilities, which was completed in May 2013, and a PPA inventory adjustment of $4.5 million as a result of the Sealy acquisition.

Financial Guidance
The Company lowered its financial guidance for 2013.

The following guidance commentary reflects current expectations with respect to a full year of Tempur-Pedic results and Sealy results from March 18, 2013:

• Net sales to range from $2.425 billion to $2.450 billion
• Adjusted EBITDA to range from $370 million to $385 million
• Adjusted EPS to range from $2.25 to $2.40 per diluted share, including depreciation and amortization of approximately $0.14 per share associated with the Sealy PPA

The Company noted its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company's control. The Company noted its adjusted EBITDA and adjusted EPS guidance does not include transaction and integration costs related to the Sealy acquisition.

Conference Call Information
Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, July 25, 2013 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 800-850-2903. The dial-in number for international callers is 224-357-2399. The call is also being webcast and can be accessed on the investor relations section of the Company's website, http://www.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.

Forward-looking Statements
This release contains "forward-looking statements," within the meaning of federal securities laws, which include information concerning one or more of the Company's plans, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "estimates," "expects," "guidance," "anticipates," "projects," "plans," "proposed," "intends," "believes," and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to the Company's expectations regarding steps taken to restore growth in the Tempur North America segment, integration, cost synergies, revenue synergies and growth, and expectations regarding the Company's net sales, adjusted EBITDA and adjusted EPS for 2013 and related assumptions. All forward looking statements are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations or that these beliefs will prove correct.

Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from those expressed as forward-looking statements. These risk factors include risks associated with the Company's new capital structure and increased debt level; the ability to successfully integrate Sealy into the Company's operations and realize cost and revenue synergies and other benefits from the transaction; general economic, financial and industry conditions, particularly in the retail sector, as well as consumer confidence and the availability of consumer financing; changes in interest rates; uncertainties arising from global events; the effects of changes in foreign exchange rates on the Company's reported earnings; consumer acceptance of the Company's products; industry competition; the efficiency and effectiveness of the Company's advertising campaigns and other marketing programs; the Company's ability to increase sales productivity within existing retail accounts and to further penetrate the Company's retail channel, including the timing of opening or expanding within large retail accounts and the timing of product launches; the Company's ability to expand brand awareness, distribution and new products; the Company's ability to continuously improve and expand its product line, maintain efficient, timely and cost-effective production and delivery of its products, and manage its growth; the effects of strategic investments on the Company's  operations; changes in foreign tax rates and changes in tax laws generally, including the ability to utilize tax loss carry forwards; the outcome of various pending tax audits or other tax proceedings; changing commodity costs; the risk that the Company's final  purchase price allocation relating to the Sealy acquisition could be significantly different from the Company's initial estimated purchase price allocation; and the effect of future legislative or regulatory changes.     

Additional information concerning these and other risks and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including without limitation the Company's 2012 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 under the headings "Special Note Regarding Forward-Looking Statements" and "Risk Factors." Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statements for any reason, including to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

About the Company
Tempur Sealy International, Inc. (NYSE: TPX) is the world's largest bedding provider. Tempur Sealy International develops, manufactures and markets mattresses, foundations, pillows and other products.  The Company's brand portfolio includes many of the most highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturepedic®, Optimum™ and Stearns & Foster®. World headquarters for Tempur Sealy International, Inc. is in Lexington, KY. For more information, visit http://www.tempursealy.com or call 800-805-3635.

 

 

 

 

 

 

 

 

Summary of Channel Sales

The following table highlights net sales information, by channel and by segment, for the three months ended June 30, 2013 and 2012:

 

 

Summary of Product Sales

The following table highlights net sales information, by product and by segment, for the three months ended June 30, 2013 and 2012:

 

 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures
(In millions, except per common share amounts)

The Company provides information regarding adjusted net income, adjusted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, and consolidated funded debt and consolidated funded debt less qualified cash, which are not recognized terms under U.S. GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to net income as a measure of operating performance or total debt. A reconciliation of adjusted net income and adjusted earnings per share is provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various costs associated with the acquisition of Sealy. A reconciliation of EBITDA and adjusted EBITDA to the Company's net income and a reconciliation of total debt to consolidated funded debt are also provided below. Management believes that the use of EBITDA, adjusted EBITDA, consolidated funded debt and consolidated funded debt less qualified cash also provides investors with useful information with respect to the terms of the Company's new debt agreements and the Company's compliance with key financial covenants. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

Reconciliation of net loss to adjusted net income

The following table sets forth the reconciliation of the Company's reported GAAP net loss for the three months ended June 30, 2013 to the calculation of adjusted net income for the three months ended June 30, 2013:

 

 

Reconciliation of net loss to EBITDA and adjusted EBITDA

The following table sets forth the reconciliation of the Company's reported net loss to the calculation of EBITDA and adjusted EBITDA for the three months ended June 30, 2013:

 

The following table sets forth a mathematical combination related to the calculation of adjusted EBITDA in accordance with the Company's new senior secured credit facility. The following table provides useful information about how the senior secured credit facility treats adjusted EBITDA and sets forth a calculation, for the Company and Sealy on a combined basis, of reported net income to the calculation of EBITDA and adjusted EBITDA for the twelve months ended June 30, 2013:

This information is presented solely for the purpose of providing information to investors regarding the Company's compliance with certain financial covenants  in its new senior secured credit facility that are based on adjusted EBITDA. This information does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, and does not reflect future events that may occur after June 30, 2013 or any operating efficiencies or inefficiencies that may result from the Sealy acquisition and related financing. Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that the Company will experience going forward.

⁽¹⁾ Combined includes the mathematical combination of the Company's historical financial results for the twelve months ended June 30, 2013 and Sealy's historical financial results for the pre-acquisition period from May 28, 2012 through March 3, 2013. Results for Sealy for periods prior to the Sealy acquisition do not give effect to any purchase accounting considerations.

Reconciliation of consolidated funded debt less qualified cash

The following table sets forth the reconciliation of the Company's reported debt to the calculation of consolidated funded debt less qualified cash as of June 30, 2013. "Consolidated funded debt" and "qualified cash" are terms used in the Company's new senior secured credit facility for purposes of certain financial covenants.

 

 

 

Calculation of consolidated funded debt less qualified cash to Adjusted EBITDA

 

 

SOURCE Tempur Sealy International, Inc.